Debt consolidation - all you need to know!

In this day and age, it's easy to have various forms of debt. Some of us will have home loans, credit card debts and personal loans. Some even have multiple loans in each of these categories! With this in mind, it's important to understand the idea behind debt consolidation and how it can benefit you.

What is it?

Debt consolidation is the act of putting all of your loans, credit card and store card debts, etc under the one loan 'roof'. The benefit of doing this may not be obvious, however if all of your debt is pooled together, it is likely that you will be able to negotiate a lower interest rate. Hence lower monthly repayments! Furthermore, if you have a home loan, consolidating all of your debt into the home loan can even be more advantageous in light of the comparably lower interest rates associated with home loans compared to personal loans and credit cards.

Debt consolidation loans

A debt consolidation loan is a facility that allows you to consolidate all of your high-interest loans into one facility and therefore have only one monthly payment. It should be clearly noted that you DO NOT need to own a property to consolidate your debt. Property may assist this process and may generate a better outcome for you (lower interest payments) but not having it is not an obstacle. In the long run - it's certainly worth the effort and it may save you some serious dough!

Benefits

One of the key benefits of debt consolidation is dealing with one lender. This not only reduces confusion for the borrower but also reduces the time and effort required to organize all of your payments. Other obvious benefits are reduced creditor pressure, reduced monthly payments and, most importantly, protection of your personal credit rating. There are other methods of reducing your debt payments such as mortgage refinancing, part X arrangements, informal arrangements or debt agreements so make sure that you choose the method which is most suited to your needs. At the end of the day, the last thing you want to have to do is declare bankruptcy - this will have a detrimental effect on your credit rating and make it even harder to access debt in the future. So, if you have various forms of debt facilities which are getting on top of you, maybe you should consider debt consolidation. It is likely to translate into more money in your back pocket.

Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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